The federal government’s fiscal year starts every April Fool’s Day. There’s a ton of work done before the Minister of Finance stands up in the House and tells us how our money will be spent for the year April 1, 2023 to March 31, 2024.
Right about now the House of Commons Finance Committee is talking privately to selected Canadians to hear suggestions for the budget for next year – the pre-budget consultations. Then, sometime around April Fool’s Day the Minister of Finance will introduce the government’s plans for fiscal, economic and social policy — the budget. Then, in the House of Commons, there’ll be a debate among all parties about whether to approve the budget. With the configuration of political parties in the House, there’s not much chance the budget will be rejected.
Whatever is approved is not the end of it. There could be unanticipated events that will require more spending. So, usually three times a year, in November, February and May, the government publishes supplementary estimates which also have to be approved in Parliament.
If you’re not paying attention, it’s more than a little confusing. Because while some public servants and politicians are thinking and talking about NEXT year’s budget, others are putting the finishing touches on a report about LAST year’s budget. Sometime soon, this month or next, you’ll hear about how much Ottawa actually collected in revenues and how much it actually spent during the last fiscal year.
The Financial Administration Act requires the Finance Minister to table a report on the amount the government thinks it will borrow in the fiscal year ahead, including the purposes for which the money will be borrowed and how the debt will be managed. This is important, because everyone wants to be able to borrow money when they need it at the lowest possible rates. So, much like people, governments have to show that they aren’t over their heads in debt, and that they bring in enough money to be able to pay interest on the debt and eventually the principal itself.
In 2022, federal per-person debt is projected to be $47,070, which is the third highest amount in Canadian history (behind only 2020 and 2021). This is more than 25 per cent higher than per-person debt before COVID in 2019. Despite this, global credit-rating agencies like Moody’s and Fitch give Canada a AA+ thumbs-up for its “well regulated financial markets, its monetary and fiscal flexibility and its economic resilience.”
Good for us. Indeed, so good for us that a few months ago, when interest rates were in the 1.5-2 percent range, the Bank of Canada cancelled a scheduled sale of long-term bonds that were to mature in 2064. It did so, it said, because Canada’s borrowing needs were declining while its balance sheet was improving because of higher inflation. The government has the authority to borrow another $513 billion for 2022-23 — $131,852 on behalf of each of us. The Finance Minister thinks she will borrow only $435 billion – only $111,825/person. If she’s wrong, interest rates are double what they were a few months ago.
We know by now that high amounts of federal debt may also cause the government to raise taxes in future, which burdens future generations with the cost of past spending. If Canada is in such good financial shape compared to other countries, what does this say about them? There are several countries, the UK among them, that are already having trouble borrowing money. Is a global credit crisis in our future?
Dian Cohen, C.M., O.M., economist